Nickel Research Centre

Nickel News Roundup - Week 2

12th January, 2023

Market Overview:

Digital assets experienced strong growth this week, erasing the losses of the last month.

  • Bitcoin experienced significant upside movement over the course of the week, rising from a weekly low of $16,730 on Friday to $18,270 on Thursday morning
  • This represented Bitcoin’s first breach of $18,000 since a brief peak in mid-December, and its first extended run at such levels since the 8th of November—before FTX collapsed and filed for bankruptcy
  • Bitcoin’s current price of $18,110 represents 7.7% weekly growth
  • Ether followed Bitcoin’s momentum, rising above $1,400 for the first time since the 8th of November, with a weekly low of $1,242, and a high of $1,408
  • Ether’s current price of $1,398 equates to a commendable 11.8% increase
  • Total Ether net supply turned deflationary in the face of greater trading activity, with a current annual supply change of -0.2%
  • Overall market capitalisation increased by $65bn to $885bn
  • According to industry monitoring site Defi llama, total value locked in DeFi this week across all blockchains and platforms grew to $42bn

New FTX management located more than $5bn in assets that could go towards creditors, whilst another of former CEO Sam Bankman-Fried’s inner circle appeared to turn on him this week. The contagion from the group’s collapse has also raised questions around Digital Currency Group, parent company to troubled lender Genesis. Global digital asset adoption continues to grow, with policy development in Hong Kong, family offices creating Web3 funds in Singapore, El Salvador creating further legal frameworks for crypto assets, Binance gaining approval in more jurisdictions, and global tech giant Amazon partnering with a rising level-1 blockchain.

What happened: FTX latest—New management locates $5bn of assets

How is this significant?
  • The most significant development in this week’s instalment of the ongoing FTX bankruptcy saga appears to have been the identification of a significant collection of assets to repay creditors
  • Lawyers working for the new FTX management said that group advisors have found “more than $5 billion in cash or crypto assets” 
  • This includes assets with a book value of $4.6bn, alongside less liquid digital assets that would be harder to extract full value from
  • FTX advisors have also identified more than 9 million customer accounts, which US Bankruptcy Judge John T Dorsey agreed to keep anonymous during proceedings
  • Former FTX engineering chief Nishad Singh (who has yet to be charged with any malfeasance) reportedly met with federal prosecutors this week for a proffer session, becoming the third member of ex-CEO Sam Bankman-Fried’s inner circle to turn on him
  • Although he has yet to be charged, his name was linked to several codebase changes that obfuscated Alameda’s special privileges—hence the impetus to collaborate with authorities
  • It’s believed that his testimony to authorities was primarily linked to Bankman-Fried’s alleged violations of campaign finance laws, as Singh himself was a large-scale political donor
  • FTX’s collapse could filter beyond the digital asset space and into the burgeoning field of A.I. (artificial intelligence); a recent New York Times reported that FTX invested over $500m into A.I. development firm Anthropic, alongside other multi-million investments in the field
  • Most of these investments were—ironically—centred around mitigating risks within A.I. funding organisations dedicated to morally positive development of the technology as part of the “effective altruism” movement which Bankman-Fried espoused
  • Now, several of the organisations funded by FTX are unsure if they can spend their funding, in the event that FTX and Alameda VC investments and donations are clawed back to pay off creditors
  • The US Department of Justice officially seized Robinhood shares worth around $490m purchased by Bankman-Fried via an Alameda loan, seemingly concluding the fraught multi-party dispute over their ownership
  • Bankman-Fried had previously claimed he needed to sell the shares to fund his legal defence; although the phrasing of his argument was very poorly received on crypto twitter, as he said “financial inability to defend oneself has serious consequences, and is irreparable… Conversely, the FTX debtors face only the possibility of economic loss”
  • Court documents revealed that various FTX units, including LedgerX, FTX Japan, and FTX Europe are attracting significant interest from potential bidders; “approximately 117 parties, including various financial and strategic counterparties globally, have expressed interest to the debtors [FTX] in a potential purchase of one or more of the businesses”

What happened: Contagion latest—Digital Currency Group faces accusations

How is this significant?
  • Digital Currency Group (DCG) is an industry conglomerate that serves as parent organisation to numerous prominent firms in the digital asset space; most notably Genesis, Grayscale, and industry publication Coindesk
  • Like many companies in the space, they’ve been affected by contagion issues, first arising from the collapse of the Terra Luna blockchain, and then exacerbated by FTX
  • Pressure increased on DCG this week, following last week’s accusations of “bad faith stall tactics” by Gemini founder Cameron Winklevoss, as they failed to produce any satisfactory remedies to Genesis Lending’s current liquidity issues
  • In a new open letter, Winkelvoss alleged that users of Gemini’s Earn program were defrauded by Genesis Lending, DCG, and group CEO Barry Silbert
  • He claims that Silbert made fundamental misrepresentations around “the solvency and financial health of Genesis”, and called on the DCG board to oust their CEO 
  • A day later, Silbert published a letter to shareholders, denying accusations of wrongdoing, and stating “Each of DCG’s wholly-owned subsidiaries has its own bank accounts, securities accounts, and crypto accounts, and maintains separate books and records”
  • Silbert defended his record, although the Financial Times reported several board-level departures since November, indicating possible internal unrest 
  • DCG made numerous cost-cutting moves this week; Genesis cut global headcount by 30%, and DCG shut down its HQ wealth management subsidiary, with Silbert writing “the current downturn is not conducive for the near-term sustainability of that business”
  • Dutch digital asset exchange Bitvavo publicly disclosed their rejection of a DCG offer to repay 70% of a $280m debt, believing that DCG have the funds to repay the debt in full
  • Curiously, despite rising concerns over DCG, Grayscale’s GBTC fund saw strong buying interest on Monday, increasing 12% and cutting the current discount versus underlying Bitcoin holdings to 39%, compared to 49% in mid-December
  • Bloomberg Intelligence analyst James Seyffart opined “There’s a lot of issues with DCG and Genesis that may push them to try and unlock GBTC’s underlying value. There are also a lot of moves… to try and take over or force redeems for some, if not all, of the trust. It could also simply be buying from big fish to get shares in order to aid in the voting process to change the sponsor of GBTC and open redemptions”
  • Coinbase also made major headcount reductions due to current market conditions, firing about 20% of its workforce
  • Silvergate Bank also suffered from the crypto winter due to its close ties with the industry; experiencing a run on deposits that necessitated asset sales at a loss, 40% headcount reduction, and concerns over regulators trying to minimise banking exposure to digital assets
  • Voyager secured legal approval to sell their business to Binance.US for $20m, as well as Binance acquiring their $1bn in digital assets at face value, for a total deal of $1.02bn
  • Zu Shu and Kyle Davies, co-founders of collapsed hedge fund 3 Arrows Capital, were subpoenaed over Twitter, as liquidation advisors claimed the two continue to be uncooperative

What happened: Hong Kong emphasises pro-crypto asset stance

How is this significant?
  • Paul Chan, financial secretary of Hong Kong, took steps to stress a continued dedication to digital assets from the city state this week, amidst a backdrop of crypto winter
  • Chan acknowledged that Singapore’s regulatory caution could be Hong Kong’s gain, backing up a pre-FTX ambition to become a regional crypto hub
  • Speaking at a Web3 forum, he said that Hong Kong follows “international norms and standards” in finance, but that “As certain crypto exchanges collapsed one after another, Hong Kong became a quality standing point for digital asset corporates”
  • Attracting new businesses from around the world is part of their strategy for the asset class, with a consultation process on retail participation and licences for digital asset trading firms all in the works
  • Reuters reported early on Thursday that Hong Kong will introduce a new virtual asset service provider (VASP) regime, with specific guardrails designed to protect retail investors
  • Speaking at the Asian Financial Forum, Julia Leung (head of Hong Kong’s Securities and Futures Commission) commented that regulators will begin accepting VASP licences from mid-2024 onwards, and propose a subset of (liquid and established) digital assets available for retail trading
  • One prominent Hong Kong businessman in the space is Animoca Brands CEO Yat Siu, who announced plans to raise $1bn this quarter for a new Web3 and metaverse investment fund
  • Siu told Bloomberg “It is fair to say it’s a challenging market. But we have quite a bit of interest”

What happened: Binance outlines growth plan and gain more regulatory approval

How is this significant?
  • Whilst many digital asset exchanges have recently cut staff numbers, industry leader Binance seeks to do the opposite to cement their leading position
  • Speaking at a conference in St Moritz Switzerland, CEO Changpeng “CZ” Zhao announced intentions to grow headcount between 15% to 30% this year, having already grown from 3,000 to 8,000 employees in 2022
  • Zhao predicted that the growth of DeFi could lead to decentralised exchanges (DEXes) overtaking Binance within 10 to 15 years, but has no plans to rest on his laurels; “We have one business that is pretty big, pretty profitable but it is not going to last forever… we don’t want to become the next Kodak… We want to disrupt ourselves rather than other people disrupting us”
  • As part of their global growth goals, Binance have sought regulatory approval across more markets; this week they were officially approved to operate in Sweden, marking the seventh European jurisdiction to rubber-stamp them after France, Italy, Lithuania, Spain, Cyprus and Poland
  • Speaking of France, Binance secured this approval despite Bank of France Governor Francois Villeroy de Galhau urging more stringent regulatory requirements for digital asset firms

What happened: Singapore’s Whampoa Group aims to deploy $100m into crypto assets

How is this significant?
  • Whampoa Group, a major Singaporean family office, reaffirmed plans to invest in the digital asset industry despite inclement market conditions
  • With connections to the families of both founding father Lee Kuan Yew and the founders of Overseas Chinese Banking Corporation (also named Lee, no relation to the former), Whampoa is one of the most prominent HNWI investment funds in Singapore
  • Recently, they appointed Jeffrey Ma and Peter Huo as co-chief investment officers of Whampoa Digital, a new unit dedicated to the digital asset and Web3 space
  • The firm have earmarked about $100m for Whampoa Digital to invest in industry startups, with Huo telling Bloomberg that dynamic development efforts across decentralisation, blockchain gaming, DeFi, and NFTs “will enable digital assets to outperform other asset classes in the coming cycle and over the long-run”

What happened: Major market maker invests in MicroStrategy

How is this significant?
  • Group One, a proprietary trading firm, filed SEC paperwork this week revealing they had bought nearly 1.3 million shares in MicroStrategy, equivalent to 13.5% of the company, or $237 million at current prices
  • MicroStrategy shares were up 7.7% on Tuesday trading following this disclosure
  • That performance gave MicroStrategy shares a 30% year-to-date growth; albeit with the combined caveats that “year to date” constitutes a very short timeframe at this juncture, and that their shares fell considerably in 2022
  • As the leading holder (and advocate) of Bitcoin on a corporate balance sheet, MicroStrategy is often viewed as a proxy for Bitcoin investment for firms who are unable to directly hold the asset itself
  • At current prices, MicroStrategy’s Bitcoin stash is worth around $2.3bn, more than the company’s $2bn valuation

What happened: Amazon partners with Avalanche for enterprise blockchain scaling

How is this significant?
  • On Wednesday, Amazon Web Services (AWS) and layer-1 blockchain Avalanche (aka AVAX) announced a partnership aimed at scaling “blockchain adoption across enterprises, institutions and governments”
  • AWS vice president Howard Wright told TechCrunch that they believe in the long-term future of digital assets and blockchain “Looking forward, web3 and blockchain is inevitable. No one can call the time or date or quarter that it’s going to happen and it’ll be mainstream, but we’ve seen the cycles of growth before. The velocity of this one seems like it’s accelerating and we’re just excited to be a part of this”
  • As a global leader in web hosting and infrastructure, AWS will make it easier for individuals and enterprises to manage nodes on the AVAX blockchain, helping ensure wider distribution and decentralisation
  • According to Amazon, around 25% of Ethereum nodes already use their hosting services, so this represents a further step into the overall digital asset ecosystem for the tech giant 
  • With a “subnet” solution allowing users to launch individual blockchains by staking the AVAX token, Avalanche’s John Wu says the partnership will enable developers “to spin up their own blockchain, a full blockchain, in Amazon very easily”
  • Wright added “we think it is the perfect time, perfect opportunity and we humbly think we’ll look back years in time and see this as a significant time for blockchain expansion”

What happened: El Salvador passes legal framework for digital assets

How is this significant?
  • Salvadoran politicians voted 62 to 16 in favour of new legislation this week, regulating the issuance of digital assets by both government and private entities, as well as broader legal frameworks for digital assets
  • As the first nation to recognise Bitcoin as legal tender, this represents a step towards acceptance of the wider asset class in El Salvador
  • The new law sought to “establish the legal framework that grants legal certainty to transfer operations to any title of digital assets used in public issuance offers”
  • Additionally, the new legislation created the “National Commission for Digital Assets and the Bitcoin Funds Administration Agency”
  • President Nayib Bukele said that the law paves the way for issuance of Bitcoin bonds by the nation, intended to fund urban development and the creation of Bitcoin mining facilities powered by volcanic geothermal energy

What happened: Litecoin outperforms market as “halvening” looms

How is this significant?
  • Although most of the attention within industry press centres around Bitcoin and Ether, Litecoin is one of the oldest and most established digital assets still operating; and its recent performance has considerably outclassed both of them, up around 70% since November lows
  • Part of this is down to the fact that Litecoin was one of the first Bitcoin forks—modifying Bitcoin’s code over a decade ago to enable speedier, lower-cost transactions; and virtually creating the concept of “altcoins”
  • An aspect of Litecoin’s legacy as a Bitcoin fork is that it also features a built-in “halving” mechanism, whereby the amount of new coins issued every new block is cut in half, reducing supply growth in a predictable manner
  • This event (colloquially known as “the halvening”) occurs after a set number of blocks, roughly equivalent to 4 years
  • Litecoin’s next halvening will occur in July; historically, halvenings have acted as catalysts for growth, due to shrinking supply of new coins entering the market, and trader anticipation of said event
News Roundups